2.1 The sheep industry contributes substantially to the economic wellbeing, social structure and character of Australian society. Victoria is Australia's third-largest wool-producing State and the largest producer of sheep meat.1
2.2 The impact of OJD and responses to the disease cannot be considered in isolation. They need to be addressed in the context of the sheep industry as a whole as well as seen in terms of the broader management perspective of individual sheep producers. To assist it in its evaluation of options for OJD, the Committee commissioned Professor Adrian Egan and Associate Professor Bill Malcolm of the Institute of Food and Land Resources, University of Melbourne, to prepare an overview report on Victoria's sheep industry.2 The report was intended to provide the Committee with a context, as well as make particular reference to issues that may influence impacts of OJD and, consequently, the management of the disease.
2.3 This chapter presents a summary of the consultants' report, with additional material from the report included in later chapters, particularly Chapter 10, Economic Impacts. The full report is available on request from the Committee.
2.4 Victoria's sheep industry is broadly affected by the same factors as the overall Australian industry. Consequently this chapter is introduced by a consideration of factors that affect trade and returns to the Australian sheep industry.
2.5 Australia's wool trade comprises less than 3 per cent of world fibre trade and use of alternative fibres is diminishing this proportional contribution. Within these circumstances, Australia continues to produce 68-73 per cent of the world's fine wool traded annually. The competitive advantage held in the fine-wool sector arises historically from the merino genotype and particularly the fine-wool breeds uniquely selected in the varied environments in Australia, together with effective use of improved and native pastures through grazing systems defined by sustained applied research over more than a century. Competition in the fine-wool market from South Africa, Argentina, Uruguay and an increasing production in China (which now has the world's largest sheep population) provides a serious challenge. More serious still is the challenge from cotton and synthetic fibres.
2.6 The ability of natural fibres to compete with synthetic fibres in terms of price and quality is the key factor determining wool prices. Prices for synthetic fibres declined through much of the 1990s, though recent oil price increases will have the effect of restoring some of the competitiveness of wool with synthetic fibres. The demand for wool is also linked to the economic cycles and consequent changes in disposable incomes of customers over time.
2.7 Sheep meat in Australia has historically had a high share of the domestic market for all meats, but both total meat consumption and particularly red meat consumption per capita has been falling steadily since the 1960s. Thus consumption of sheep meat per person has fallen from 46 kg per year in 1960 to 17.2 kg per year in 1998.
2.8 Exports of lamb and mutton and live wether sheep over the past five years have been worth a total of about $200 million per year to the Australian economy. However, exports are vulnerable to changing trade policy decisions and also to the application of quarantine or quality assurance regulations by the importing country. Thus, in 1991 and 1992 exports were $71 million per year; a high of $223 million was reached in 1996, but in 1998 exports dropped to $185 million. Exports of lamb carcasses to the USA were curtailed in 1998 in the face of politically driven farm-support decisions within the USA; exports of live sheep to the Middle East were disrupted several times in the past decade by local identification of scabby mouth in sheep arriving by ship.
2.9 Such restrictions on trade may occur at any time. They are not always genuinely associated with product quality or health issues. While wide fluctuations are largely unpredictable, falls in trade are particularly damaging where, once imposed, import resistance is sustained. Competition from (often subsidised) producers in importing countries like the USA is variable over time and does not easily yield to resolution under international free-trade (GATT) agreements. Competition from other exporters, such as New Zealand, Argentina and South Africa, who aim at several of the same international markets, is strong. Though these countries are subject to the same sheep health status and quality assurance issues as Australia, they can gain preferred trading status arrangements that have little to do with the product.
Overseas markets for Victorian sheep products are significant - and susceptible to real and perceived market assurance issues.
2.10 Agricultural production, while still important to Australia, is relatively less significant than it was forty to fifty years ago. The recent national annual gross value of agricultural production of $25-30 billion makes up 2 per cent of the nation's Gross National Product - in 1960 it was 14 per cent. Rural exports were 80 per cent of the value of total exports in 1950 and now make up about 25 per cent of the value of total exports. The market value of wool and sheep-meat products produced per year is around 10 per cent of the national gross value of agricultural production.
2.11 Wool remains an important export earner for Australia, with around 95 per cent of the Australian clip being exported, and returning $3-4 billion per year. Australian wool-growers are the dominant producers in the world of fine wool used for apparel, producing over 70 per cent of the world's fine wool that is traded.
2.12 The nature and geographical distribution of agricultural activity at any time, and changes occurring over time, are determined by a mix of human, natural and economic factors. Profitability is determined by the quality of the physical resources, the inputs that are required, the quality of the output, transport costs, market prices for output, the level of fixed costs per unit of output which derives from the scale of the operation, and the risks and their costs. Ultimately the type of agricultural system used in any given locality will depend on its profitability, the risks that are associated with that system in the locality and the options available to the producer. Other options could be a different type of system in that locality or the enterprise undertaken somewhere else in a more favourable environment.
2.13 For example, the relative prices of beef, wheat, wool and sheep meat are the key determinants of enterprise mixes in broad-area farming in Victoria. As a result of rises in the prices of beef and wheat relative to wool, there was a significant movement out of wool production into grain and beef production during the 1990s. The area sown to wheat nationally each year increased by nearly 20 per cent, while the area sown to other coarse grains rose by 30 per cent.
2.14 During the 1990s, price relativities between different classes of wool changed to favour quite strongly the finer end of the wool clip. The proportion of the national clip that is 20 microns and finer increased by 50 per cent during the 1990s.
2.15 Towards the end of the decade, cash incomes for the now reduced numbers of specialist wool producers recovered somewhat, but remained low in historical terms.3
2.16 With nearly 60 per cent of Australia's sheep flock located in the `wheat-sheep' zone (regions where sheep and wheat are produced on the same properties) and the generally weak outlook for wool prices, there will continue to be pressures to intensify cropping, introduce alternative enterprises and reduce the number of sheep carried. It should be noted, however, that for many grain-growers sheep remain an integral part of their cropping system. In the `ley' cropping systems, crops are used in rotation with pastures on the same paddocks, to restore fertility to the soil. The role of livestock in using crop residues and pasture produced in the `ley' phases of crop rotations, and in spreading income risks, will continue to be important in much of Victoria's cropping and mixed-farming areas.
2.17 More recently, higher prices for lamb and mutton have led to some change in the types of sheep carried. The Australian Bureau of Agriculture and Resource Economics (ABARE) is forecasting that mutton and lamb production and prices will be reasonably constant over the next two to three years.4Australia-wide, 70 per cent of ewes are mated to merino rams and 30 per cent of ewe matings are to meat and dual-purpose breeds of rams - that is, to provide offspring suitable for meat sale or as mothers for fat-lamb production. In Victoria, however, only 50 per cent of ewes are mated to merino rams and 50 per cent are mated to meat and dual-purpose breeds of ram. These statistics indicate the greater importance of prime-lamb production compared with fine-wool production in Victoria relative to the rest of Australia, where wool production continues to dominate.
2.18 Numbers of sheep of different types in both Australia and Victoria are shown in Figure 2.1.
2.19 Sheep products worth up to $1 billion per year are produced in Victoria. Sheep grazing is an integral activity in the mixed-farming operations that are found right across Victoria, except in the mountainous high country. In the south, south-west and south-east of Victoria, with high rainfall and seven- to ten-month growing seasons, fine-wool merino and cross-bred prime-lamb sheep are produced. Most commonly these sheep enterprises are combined with other activities such as beef production or small-scale, high-rainfall crops or, increasingly for small numbers of farmers situated near dairy-farming districts, rearing dairy-cattle replacements.
Source: Australian Bureau of Agriculture and Resource Economics (1998), Farm Surveys Report, ABARE, Canberra.
2.20 Specialist wool and prime-lamb operations exist, but in declining numbers. As the rainfall gradient and growing season declines in a north, north-west and north-easterly direction across Victoria, the ratio of crop to livestock production per farm increases steadily. In the cropping areas of the Mallee, North Central and Wimmera regions, sheep generally remain an integral part of the cropping systems.
2.21 The Victorian flock of around 15 million adult sheep is distributed as follows:
a) around 1 million sheep are carried in East Gippsland;
b) 0.25 million sheep in South and West Gippsland;
c) 2.5 to 3 million sheep are carried in north-east and central Victoria;
d) 3 to 4 million sheep are in the Wimmera and Mallee; and
e) 7 to 8 million sheep are in the Western District.
2.22 In Victoria in 1998 there were around 10 million breeding ewes, nearly 5 million lambs and hoggets (older weaned lambs) and 7 million other sheep, representing in total 20 per cent of the sheep population in Australia.
2.23 The Australian Bureau of Agricultural and Resource Economics (ABARE) undertakes regular Farm Surveys.5 In these it uses the following classifications of broad-area activities:
a) sheep farms;
b) wheat and other crop farms;
c) mixed livestock and crop farms;
d) sheep-beef farms; and
e) beef farms.
2.24 Figure 2.2 provides a summary of information from the 1998 Farm Surveys
on numbers of different types of sheep-farming enterprises in Victoria. Using
the ABARE classifications, there were 4,049 sheep farms, 1,914 sheep-beef farms,
2,900 wheat-sheep farms and 3,558 mixed livestock-cropping farms - a total of
12,421 farms running sheep in significant numbers. (Some beef properties also
carried a small number of sheep.)6
Figure 2.2: Numbers and types of sheep farms, 1997-98
Source: Australian Bureau of Agriculture and Resource Economics (1998), Farm Surveys Report, ABARE, Canberra.
2.25 The ABARE Farm Surveys provide information about the average of these various categories of broad-area farms in Victoria. Figure 2.3 shows average numbers of sheep on each main type of farm and changes that have occurred in these numbers during the last decade.
Sources: Australian Bureau of Agriculture and Resource Economics (1990 to 1998), Farm Surveys Reports, ABARE, Canberra.
2.26 While the `average farm' does not exist, information about a farm with the average levels of performance characteristics is useful if it is interpreted with care and in full recognition that there is a wide distribution of farm performances around this average. As a broad generality, small farms and farms with a small sheep-enterprise component will be the most likely to discontinue sheep production as low prices continue or risk increases.
2.27 Figure 2.4 summarises trends over the last decade in the numbers of sheep-carrying farms in each main category. In 1990 there were a total of 14,800 farms carrying sheep. A marked decline is evident over the 1990s decade in the number of specialist sheep producers, from 7,547 (50 per cent of all farms with 66 per cent of the total number of sheep) down to 4,049 (32 per cent of all farms with 50 per cent of the total sheep numbers). There was a corresponding increase in the number of sheep-beef and wheat-sheep operations and the number of mixed livestock-cropping farms declined.
Sources: Australian Bureau of Agriculture and Resource Economics (1990 to 1998), Farm Surveys Reports, ABARE, Canberra-
2.28 Specialist sheep farms and sheep-beef farms are found mainly in the west and centre of Victoria and in East and South Gippsland. Mixed livestock-cropping farms predominate in Victoria's north-east. Wheat-sheep farms are in the Wimmera and the Mallee.
2.29 The number of sheep on the average sheep farms of the various types in Victoria has varied through the 1990s, reflecting the effects of changing seasons and profitability of not only the sheep industry but also changes in the relative profitability of alternative activities. The number of sheep on average sheep-only farms has ranged around 2,400 to 2,800. Average sheep-beef farms have carried around 1,700 to 1,800 sheep and average mixed livestock-cropping farms have shown a trend to increasing sheep numbers, from 1,200 in the early 1990s to nearly 2,000 in 1997 and 1,600 in 1998. The number of sheep carried on average wheat-sheep farms has declined steadily, from 850 in 1990 to 500 in 1998.
2.30 Improved returns to prime-lamb production have resulted in a substantial move into that activity in the high-rainfall parts of Victoria. The proportion of receipts from lambs has risen, and the proportion of matings of merino ewes to short-wool and long-wool rams has risen around 20 per cent since the middle of the 1990s. The increase in lamb production using cross-bred ewes has caused an increase in average fibre diameter of wool produced in the State, despite the fact that on specialist wool producing farms the average fibre diameter has reduced by 1.3 microns in the same period. In national terms, Victoria produces the largest share of any of the States of the total quantity of fine (20 micron or less) wool produced.
The sheep industry is a major part of the Victorian economy. The industry is diverse and undergoing constant change.
2.31 This section outlines the important factors that determine the nature of the wool and sheep-meat production systems used in Victoria.
2.32 The most important characteristic of wool is its fibre diameter. This determines its ease of processing and quality of the fabric produced and consequently its end use and price gained. Fine wool is less than 20 microns, 20-23 micron wool is medium and 24-28 micron wool is strong. About half of Australia's wool has an average fibre diameter of between 20 and 22 microns. Around 2-3 per cent of all wool produced is finer than 18 microns.
2.33 Within the merino breed, different strains have different characteristics regarding fibre diameter and wool weight. The finer-wool-producing merinos are smaller bodied, cut less wool and have a shorter staple length than do the stronger-wool merinos. Strong-wool sheep are more susceptible to fleece rot and fly strike than are the finer-wool strains. Fleece weight and fibre diameter are factors that are strongly inherited and thus are the focus of flock genetic improvement.
2.34 In Victoria, the majority of wool and sheep meat is produced as part of a farm business that has a mix of several activities, such as cereal or grain/legume production or beef. In the wheat-sheep zone, sheep are complementary to the cropping activity and so the number of sheep run in these areas is affected by the prices of both wool and wheat. In the high-rainfall area, mixed livestock farming means the number of sheep is affected by the prices of wool and beef.
2.35 In the wheat-sheep areas, sheep graze a legume pasture that is part of the cropping rotation, with stocking rates of two to three Dry Sheep Equivalents (DSE) per hectare over the year. In the high-rainfall zone, including southern and central Victoria, stocking rates of ten to fifteen DSEs per hectare are common.7
2.36 Wool cut per head is lowest in the most heavily stocked areas and highest in the lowest-stocked areas, but wool cut per hectare is usually highest in the highest-stocked areas and lowest in the lowest-stocked areas. This does not necessarily mean that high stocking rates lead to greatest profitability, as length of the wool and costs of management also affect profits.
2.37 Both self-replacing and brought-in flocks are found in the wheat-sheep and high-rainfall areas. In self-replacing operations, young replacement ewes are selected at around 15 months of age, just prior to first mating. The number of replacement ewes selected depends on the age distribution of the existing ewe flock, and the age at which they are cast-for-age (sold because of their age). Cast-for-age ewes from the harsher north- west climatic areas of the State are often still good for a year or two of production in the wetter southern areas. There they will be used to produce first-cross lambs for sale as lambs, or as replacement first-cross breeders for second-cross prime-lamb operations. Ewes of all ages may be culled because of poor performance, other faults, or poor health.
2.38 On properties where merinos are run primarily for producing wool, mating is timed so that late pregnancy and lambing occur when there is the most feed available. Merino ewes have highest fertility and fecundity between January and June, have lower fertility between August and October, improve in fertility between October and December but are less prolific than in January-July. This characteristic breeding pattern is critically important in the decision to lamb in spring or autumn, along with considerations of feed supply and weather conditions around lambing time. It also influences the degree of stress experienced by the pregnant and lactating ewe.
2.39 `Prime lambs' are lambs grown specifically to provide high-quality lamb meat. They are produced by both farms that specialise in prime-lamb production and those where lamb production is one of several other activities. The method of producing varies with location, climate, soil types, topography, water supply and so on. Prime-lamb specialists tend to use second-cross ewes (that is the progeny of a merino ewe and a British meat-sheep ram such as a Border Leicester) in order to reap benefits of fecundity and hybrid vigour. These ewes are then mated with a second British-breed ram such as the Dorset, to produce second-cross prime lambs, all of which are sold.
2.40 There are numerous alternatives in the breeding mix. Breeds derived from merinos such as Polworths, Corriedales and Comebacks are sometimes used as prime-lamb mothers instead of the merino and British-breed first-cross ewe. While the most common terminal sire used is either a Poll Dorset or Dorset Horn, there are also other quick-growing breeds such as the Southdown, the Suffolk and the Cheviot. Breeds with high mature liveweight, such as Texel and White Suffolk, are popular for large, lean lamb production.
2.41 Second-cross prime lambs are produced in the higher -rainfall areas. The first-cross ewes for breeding are often bought in from the lower-rainfall wheat-sheep zones or hill country. First-cross lambs are either all sold as early lambs; or the wether lambs are sold as lambs or grown to hoggets and sold for meat while the ewe lambs are sold as replacement ewes to be used for breeding second-cross prime lambs.
2.42 Nearly all lambs produced in Victoria for meat are grown on `improved' pasture, that is, exotic pasture grasses and legumes. Some of these pastures are irrigated and carry high densities of livestock. The timing of mating and lambing is dictated by expected feed supply and market conditions.
2.43 Lambs are sold for slaughter by public auction, sold at a price negotiated in the paddock, or sold `over the hook' at an agreed price per kilogram. Prices through the year are highest in the summer and lowest in the spring. There is a price premium for out-of-season lambs because they are difficult and costly to produce.
2.44 Fleece weight, fineness and uniformity of wool fibre, high growth rate, good body composition at age of sale and resistance to external and internal parasites are some of the desirable traits sought in sheep flocks. Studs provide the generic material for improvement of commercial flocks. Parent studs provide elite animals for sale. Many of these animals are purchased by daughter studs. These extend the bloodline and have major clients among the commercial flock owners, commonly in regions within a 150 km radius.
2.45 All studs have a core clientele of regular or repeat purchasers as well as a wider group of occasional buyers among the commercial flock owners. Buyers at auction may come from the near locality or from great distances. There has been a trend in recent years for commercial producers to import fine-wool genes from studs that are widely distributed beyond traditional patterns.
2.46 Thus studs, and particularly the parent studs, are of great importance to the continuing improvement of commercial sheep flocks. At the same time, as extensive suppliers of breeding stock across widely dispersed areas, they have the potential to spread infectious disease.
2.47 Production of commercial breeding stock is an important enterprise in some regions. Such enterprises produce wethers for wool producers who do not run their own breeding animals and also ewes for meat producers. First-cross lambs (merino ewe crossed with British-breed sire) are also commonly sold to meat producers as mothers for prime lambs.
2.48 Production of commercial breeding stock often occurs in regions that are not well suited to fattening of sheep, where an option of meat production is not available as an outlet for lambs or aging sheep. For the producers of commercial breeding stock the sale of breeding animals contributes significantly to the farm income. They also produce wool.
2.49 Feed supply is the major, but not the only, factor determining the annual program of mating, lambing, shearing and sale of stock on sheep properties.
2.50 A sheep's requirements for a range of nutrients (amino acids, glucose, lipids, minerals, vitamins) varies according to the physiological state of the animal and varies with environmental conditions of heat or cold.
2.51 In pasture-only systems, and in pasture phases of crop rotations, the nutritional value of a pasture plant varies through the season, as the plant becomes increasingly fibrous in summer and autumn. The duration of the supply of high-quality, low to medium fibre fodder is determined partly by the length of growing season and related climatic factors. Management aims to match the nutritional demands of the animal with the nutritional supply available from the pasture. In addition, in crop-sheep systems, the sheep gain some nutritional support from crop residues, from land not currently in crop, and from non-arable areas.
2.52 Other factors also contribute to the constraints and strategic decisions on 'what happens when' in a grazing activity. These other considerations can mean that the ideal time for lambing, fattening and sale of young stock, in terms of feed supply alone, is not the ideal time in terms of the market. If everyone sells at the same time the price will be lower than at other times of the year. There may be animal health factors that will influence decisions, or competing demands for labour at certain times of the year (such as for cropping operations). These numerous factors influence the timing of major changes in stock numbers, sales and between-farm transactions of livestock. Any factors that restrict a producer's flexibility in making management decisions can have an impact on the profitability of the enterprise.
2.53 Sheep production for wool and meat, where it is increasingly concentrated in crop-livestock and high-rainfall sheep-beef systems, is showing a trend towards higher-intensity grazing management. This involves increasing stocking rates and more intensive grazing management.
2.54 The sheep-farm manager has to allow for variability of feed supply and will generally aim to match the period of greatest feed requirements to the period of maximum feed supply. Of course expected feed supply may not match expectations. Seasonal variations can create shortfalls in feed.
2.55 Thus, the need to maximise returns can lead to stress on animals due to restricted fodder supply. Intensive grazing can add to this stress by increasing the risk of parasites or contagious diseases.8Replacement Systems and Trade Patterns
2.56 Sheep production activities can be categorised into three types: non-breeding (that is wethers only), breeding with bought-in female replacements and self-replacing. Non-breeding animal systems include running of wethers only for wool and fattening of store lambs. Breeding with bought-in female replacements includes systems where first-cross ewes or merino ewes are bought rather than bred on the property. Self-replacing systems breed replacement stock (except generally some rams) on the property. They include straight-breeding enterprises where merinos are crossed with merinos and also mixed-breeding enterprises where some merinos are mated to merino rams to produce replacements and others mated to Border Leicester rams to produce first-cross offspring for sale.
2.57 Many Victorian flocks are self-replacing, particularly the merino wool flocks. In this case the individual animal tends to have increased production, in terms of both wool and fecundity, for the first few years, then decreasing production as it ages. How much production falls off with age depends on environmental conditions and the critical question is the age at which it is best to cull sheep. The need to breed and retain replacement animals consequently depends on the age at which older animals are culled and the reproductive rate of those retained, and directly affects the possible alternatives in flock structure (that is, the proportions of animals of different sexes and ages).
2.58 Self-replacing flocks can be essentially closed flocks, purchasing only rams to improve the genetic quality of the flock. In some cases these flocks are actually closed, introducing new genes via artificial insemination only. Running a closed flock is usually practised to minimise the risk of introducing disease or parasites.
2.59 The trading patterns of a district are influenced by replacement strategies. Trade in sheep for flock replacement purposes sometimes involves farmers using established supply relationships and routinely buying the stock they require. For example, South Australian sheep farmers are often the source of supply of replacement sheep for farms in the Western District and north-western Victoria, while farmers in East Gippsland and northern Victoria will obtain replacement sheep from sources in NSW. Prime-lamb producers in southern and central Victoria will often get replacement first-cross ewes from the Riverina and the North Central, Wimmera and Mallee regions of Victoria. Properties and localities that commonly supply sheep to other producers are, as a result, more likely to be the source of infectious stock diseases than are those that buy in sheep or run closed flocks. Alternatively, properties and localities that buy in sheep are at higher risk of introducing infectious stock diseases to their flocks.
2.60 Performance of any animal depends on both environmental conditions and the genes that it receives from its parents. Within any animal population there are variations in individual genetic make-up (genotype), expressed, for example, in different milk production, growth rate, wool cut, carcass composition and lambing rate. Animal breeders can use this variation to gain genetic improvement by keeping, for future breeding, those animals that have the highest levels of performance. The main aim of genetic improvement in merino sheep is to increase fleece weight while maintaining or reducing fibre diameter.
2.61 Low nutritional levels can actually be used to induce production of finer wool by merinos. This is a high-risk strategy, however, and requires very careful management. Such animals can easily produce poor fleece weight with the potential for weak fibre, and may have poor lamb production and vulnerability to disease or severe weather conditions. The process of genetic selection is accelerated by the introduction of elite animals from stud flocks for breeding purposes.
2.62 Overseas sales of genetic material for the sheep industry now involve semen and embryos rather than live animals. Likewise, introduction of new genetic material into the sheep population of Australia now relies on importation of embryos and quarantine screening.
Victorian sheep farms are not all the same, farmers run different breeds, have different production systems and trading patterns.
1 Australian Bureau of Statistics (1996-97), p. 13; and also Australian Bureau of Statistics (1998-99).
2 Egan and Malcolm (2000).
3 Australian Bureau of Agriculture and Resource Economics, Farm Surveys Reports, Canberra, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999; and also Egan and Malcolm (2000), p. 4.
4 Australian Bureau of Agriculture and Resource Economics (2000), Farm Surveys Reports, Canberra.
5 Australian Bureau of Agriculture and Resource Economics, Farm Surveys Reports, Canberra, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996, 1997, 1998, 1999.
6 Australian Bureau of Agriculture and Resource Economics, Farm Surveys Reports, Canberra, 1998.
7 A dry sheep equivalent (DSE) is the amount of fodder consumed by an average wether. A lactating ewe or growing lamb requires considerably more feed. Consequently, all carrying capacity of land or feeding pressure is described in terms of the number of wethers that would consume an equivalent amount of feed to the stock actually on a property.
8 Reid (1981), pp. 489-93, 508-9.
